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CF earnings call for the period ending December 31, 2018.

Contents:

Prepared Remarks

Questions and Answers

Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2018 CF Industries Holdings Earnings Conference Call. My name is Stephanie and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session toward the end of the presentation. (Operator Instructions)

I would now like to turn the presentation over to the host for today, Mr. Martin Jarosick with CF Investor Relations. Sir, please proceed.

Martin Jarosick -- Vice President-Investor Relations

Good morning, and thanks for joining the CF Industries 2018 full year and fourth quarter earnings conference call. I am Martin Jarosick, Vice President, Investor Relations for CF. With me today are Tony Will, CEO; Dennis Kelleher, CFO; Bert Frost, Senior Vice President of Sales, Market Development and Supply Chain; and Chris Bohn, Senior Vice President of Manufacturing and Distribution.

CF Industries reported its full year and fourth quarter 2018 results yesterday afternoon. On this call, we'll review the CF Industries results in detail, discuss our outlook and then host a question-and-answer session.

Statements made on this call and in the presentation on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. More detailed information about the factors that may affect our performance may be found in our filings with the SEC, which are available on our website.

Also, you will find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website.

Now let me introduce Tony Will, our President and CEO.

Anthony Will -- President and Chief Executive Officer

Thanks, Martin, and good morning, everyone.

Last night, we posted our financial results for 2018 in which we generated adjusted EBITDA of $1.4 billion, a 45% increase over 2017 adjusted EBITDA of $969 million. These results reflect the backdrop of tighter global nitrogen supply/demand and generally lower North American natural gas prices. But it was the hard work and outstanding execution by the CF team that allowed us to capitalize on the market conditions. And even though it was the efforts of the entire CF team that delivered these great results, I want to highlight Chris' and Bert's organizations, in particular.

Let me call your attention to slide seven of our materials. This data, taken from an analysis conducted by CRU, indicates our superior operating performance. We've talked about being great operators in the past but this may be the first time we've quantified the impact for you. We've been able to achieve a 10% greater utilization in our ammonia plant production than our North American competitors. Based on the size of our network that translates into roughly 800,000 tons of incremental ammonia per year that we produce versus what our competitors would be able to do with a comparably sized asset base. Or said another way, we basically have a full additional world-scale ammonia plant worth of production every year based on our operational capabilities. Given that a world-scale ammonia plant in North America would cost over $1 billion, our operational expertise is a significant competitive advantage.

On the supply side -- on the supply chain and marketing side, we realized higher selling prices across all products year-over-year. We also achieved lower cost of goods sold for the year. This execution across all parts of our business enabled us to generate an increase in adjusted EBITDA of 45% versus 2017. We operated well and, most importantly, we did so safely. We ended the year with a recordable incident rate of 0.6 incidents per 200,000 hours worked and we accomplished that despite a very heavy turnaround and maintenance schedule. I am really proud of the CF team for a truly fantastic year.

Looking ahead, we're excited about 2019. As Bert will explain in a moment, we see a continuation of the favorable market conditions from last year. Based on January and February actual gas costs, along with the forward strip, 2019 gas could be lower than 2018 by almost $50 (ph) million. Additionally, year-to-date, index pricing at the US Gulf for major products, as reported in the publications, is also running ahead of last year, and we anticipate a substantial increase in nitrogen demand in North America, given our expectations for increases in both corn and wheat acres compared to last year.

All of that suggests a strong first half of 2019. Weather will have a big say as to if that materializes in the first quarter or the second quarter, but either way, the first half in total should be strong. The second half of the year is always a reset and therefore somewhat uncertain as we sit here in February, but we continue to be bullish about the long-term trends that extend out to 2022 and beyond.

New global nitrogen capacity is growing more slowly than demand, further tightening supply and demand, and the forward curve for North American natural gas looks really attractive compared to the rest of the world. So our story is more than just about a great opportunity in the first half of 2019. We are very well positioned for the next four to five years.

In 2018, our business generated $1.5 billion in cash. We deployed that cash consistent with our long-standing capital allocation philosophy. We invested in sustaining and improving our existing assets. We grew by acquiring the previously outstanding units of Terra Nitrogen LP. We paid our regular dividend and we returned our excess cash to shareholders by announcing and then completing a $500 million share repurchase program.

As shown on slide nine of our materials, the share repurchases by themselves should drive a roughly 5% accretion in 2019 over 2018. We closed the year with almost $700 million in cash on the balance sheet, and given our positive outlook for the next four to five years, our Board has authorized a new $1 billion share repurchase program that runs through 2021. In addition, we again reiterate our commitment to retire the $500 million in debt on or before its maturity in May of 2020.

With that, let me turn it over to Bert, who'll cover our market outlook, and then Dennis will discuss our financials before I return for some closing thoughts. Bert?

The CF team performed well throughout 2018 with total sales of 19.3 million product tons. This included a record volume of urea and near record volume for UAN. Ammonia sales, while benefiting from higher prices, were notably lower in 2018 compared to 2017. This was due both to a higher number of plant turnarounds in 2017 and the fall ammonia season negatively affected by poor weather.

Global prices reached 2018 highs in October. Since then, they have been under pressure, first due to moderating energy prices in Asia and Europe and then due to seasonally low demand in the northern hemisphere. We believe that as demand begins to materialize industry fundamentals will support global nitrogen prices in 2019. As a result, we see substantial opportunities to build on our 2018 performance.

Net global urea production capacity additions are projected to be modest for the year at approximately 3.5 million metric tons. Additionally, we believe global nitrogen demand will be solid in 2019. Most notably, we expect strong nitrogen demand in North America during the first half of the year. The new crop soybean to corn futures ratio favors a substantial increase in corn plantings in the United States which are projected to rise by 4 million acres to 93 million acres in 2019. We also expect a 1 million acre increase in wheat plantings. These acreage shifts should drive incremental nitrogen demand in North America.

Additionally, the poor fall ammonia season supports further incremental demand. Areas that did not apply ammonia in the fall will likely need to make up the resulting nitrogen deficit in the first half of the year with applications of ammonia or upgraded products in the spring. With the demand outlook in North America, we anticipate barge, rail and truck logistic assets will be in high demand and priced at a premium through the second quarter. As we look ahead, we expect sales volumes to increase compared to 2018. In any given year, CF sells around 19.5 million product tons which can be higher or lower based on turnarounds and maintenance inventory levels entering the year and product mix.

We also expect to continue to benefit from our access to low cost North American natural gas. We weathered spikes in the fourth quarter well, and the forward curve looks favorable. We continue to benefit substantially from basis differentials, particularly in Oklahoma and Alberta and are actively managing our natural gas requirements, purchasing forward to lock in basis differentials to remove near-term price spike risk.

Each of these factors make us optimistic about 2019. We're well positioned for this environment, we have demonstrated our ability to effectively leverage the flexibility of the CF system to navigate market conditions and we're confident in our ability to maximize our overall margin through the year and into the future.

With that, I'll turn the call over to Dennis.

Dennis Kelleher -- Senior Vice President and Chief Financial Officer

Thanks, Bert.

The Company reported net earnings of $49 million or $0.21 per diluted share and EBITDA of $349 million for the fourth quarter of 2018. After taking into account the items detailed in our press release, our adjusted EBITDA was $341 million.

As the global nitrogen recovery has taken hold, our cash generation has increased in turn. This has allowed us to deploy excess cash in line with our long-standing capital allocation philosophy.

As you can see on slide six, net cash provided by operating activities was approximately $1.5 billion in 2018. We used $422 million for capital expenditures on sustaining and improvement projects. We also invested in growth by purchasing all of the publicly traded common units of Terra Nitrogen in April. It also enabled us to return $780 million to shareholders in 2018, which included $280 million in dividend payments and $500 million in share repurchases. The repurchase program reduced our share count by approximately 11 million shares.

As you can see on slide nine, taken together, these have increased shareholder participation in the underlying assets of the business by approximately 5% or 2 tons of nitrogen per 1,000 shares compared to the end of 2017.

As we look ahead, we believe will be able to build on this track record. We ended 2018 with ample liquidity. Our cash and cash equivalents were about $682 million, and our $750 million revolving credit facility was undrawn. We expect capital expenditures in 2019 to be $400 million to $450 million. And as Tony explained, we also expect substantial cash generation in the years ahead. As a result, the Board approved a new $1 billion share repurchase authorization through the end of 2021. We also remain committed to repaying $500 million in debt on or before its maturity date in May of 2020.

With that, Tony will provide some closing remarks.

Anthony Will -- President and Chief Executive Officer

Thanks, Dennis.

Before we open the call to questions, I want to again thank all of CF employees for their outstanding work in 2018. Their commitment and dedication drive everything we achieve as a company.

We're proud of what we accomplished in 2018 and we're looking forward to the opportunities we see ahead in 2019 and beyond. We are well positioned to leverage our considerable strengths and take advantage of the favorable industry fundamentals we see for the foreseeable future. We expect this to drive our substantial cash generation capability and enable us to continue to create long-term shareholder value.

With that, operator, we will now open the call to questions.

Questions and Answers:

Yes, hi, good morning. Just wanted to find out a little bit about your thoughts on the Magellan pipeline potentially being shut down, and what that means longer term for both your business as well as the future of fall ammonia.

Thanks. On -- regarding the Magellan, we are disappointed, but not surprised by their decision to shut down the pipeline. They've had operational issues for the past several years, which has challenged -- to support our ship, the tons that we've wanted to move up and see up the Midwest. We ship about 4% to 5% of our ammonia on the Magellan and kind of projecting what we thought would happen, we've been working with our system, with our team to create options and different avenues to move our tons up into that market, one is barge loading out of Verdigris, which we're able to do now, as well as increasing our storage capabilities in certain terminals and working with our truck providers. So we believe that we will be in an OK position moving forward to continue to move those tons into the market, and we expect the pipeline to shut down by the end of the year.

Anthony Will -- President and Chief Executive Officer

Realistically, Michael, it was just the Verdigris, tons, so were the predominant tons that we transported down the Magellan. And as Bert said, we've got some good barge options coming out of there. So I think Bert's team has done a really nice job of preparing for this eventuality.

Good morning. Thank you. When you think five plus years out, can you give us an update on how you see the growth of the US LNG market impacting US nitrogen economics and specifically CF's position on the cost curve? And do you have kind of strategies to manage that? Thanks.

Anthony Will -- President and Chief Executive Officer

Yes, Ben, I think both Dennis and I will take a look at this. But the good news is, from our perspective, that construction costs in North America are extremely high. And so anybody that's building an LNG liquefaction capacity in North America is putting a fair bit of dollars into the ground and are expecting a return on it given that those are all for profit entities over here. And the result of that is given an expected rate of return, we see gas costs in the rest of the world continuing to be in a position where North America is substantially advantaged relative to our competitors abroad. And I think from a resource base, in North America, if you look at what happened just in the last couple of years, we've gone from high 60s, low 70s Bcf production into the 80s, mid-80s now and the supply response is very quick in North America and gas price is below $3. So we don't think there is an issue of the resource drying up quickly and North American gas spiking and we don't see the new LNG capacity dramatically lowering the marginal cost of production elsewhere in the world. So for the next four to five years, we think it's business as usual for US producers.

Dennis Kelleher -- Senior Vice President and Chief Financial Officer

Yes, Ben, I think the key thing for you to look at on the resource side is, what is sort of the resources to production ratio and that's seen at anywhere from 80 to 100. And when you've got a ratio that high, typically -- and when you've got, when you can tap into the resource with the short cycle time, low cost, land rig projects the production response can be as Tony has talked about or outlined it. And so the small increments that we see in LNG capacity that have come or that will come are pretty small compared to what the resource base is capable of producing in a fairly short time frame.

Thank you. Given we're approaching the tail end of capacity expansions over the last build cycle -- last half decade or so, how do you believe urea trade flows are going to evolve, given the decreasing importance of Chinese exports, and if you could also touch on how you believe the UAN trade flows will evolve in the context of European anti-dumping duties, both of those would be appreciated. Thank you.

So, you're right. Regarding expansions where -- as I said in my notes, that about 3.5 million tons are coming on this year, a declining amount of tonnage -- new tonnage coming on. And with expected growth, we expect that the urea market will be good and positive going forward. However, the capacity expansions that have come are from lower cost production areas, Nigeria, Northern Africa, Middle East. I'm not sure about the Indian additions that are announced just because they will be having to pay high-cost LNG. And we do believe that China, over time, is moderating down to this level of about 2 million tons of exports. So trade flows, I think you've seen the additions come on and operate well in the United States. We're going to move down into a lower level of imports and stay in that range of let's say 4 million tons. And we expect growth in Brazil as the Petrobras plants are shut down, so moving from 5 million tons to over 6 million tons. Still expect India to be in that 6 million to 7 million ton range for the next couple of years. And so it's a classic supply and demand and high-cost and marginal producer, back to those economics, and the cost curve will work and that these higher cost or higher LNG markets will have to moderate down and absorb the lower cost tons, and that's a direct reflection of these EU discussions. We're actively participating and cooperating with this analysis. We expect an announcement to come out in the next month or month and a half and they could lead to duties, no duties or continuation of the same duties, which we pay today at 6.5% while millions of tons come this way and pay no duty in the United States. So our position on that one is pretty clear. The low margins of the European producers is completely unrelated to the US imports that we've shipped or exports we have shipped over to there but is caused by a combination of what we've experienced, lower price UAN and urea global prices, and then high European production costs, driven by high gas costs whether that be LNG or Russian imports. And so we expect, and I would -- if you're thinking economically and reviewing the economic analysis that we others have provided, that analysis should come out that we did something that was shipping tons at prices similar to what the United States were and was not anything close to dumping.

Anthony Will -- President and Chief Executive Officer

Yeah, I mean, I think on that point, as Bert said, we're cooperating actively with the Commission investigation. We are not dumping. It is a global price point for UAN and our delivered price into France and Belgium is above what our netback price would be using the Jones Act vessel to hit the East Coast of the United States. So those are very rational kind of moves for us to make. And at the end of the day, it is not the western European producers that are filing this complaint. It is -- it's not EuroChem, it's not OCI, it's not Yara, it is the eastern European producers, Lithuania, Romania, Poland sort of area that are bringing this lawsuit, and as Bert said, they're running very inefficient, very high cost and logistically challenged plants because if you look at where the center of mass of UAN consumption is in Europe, it's France and Belgium, and where those plants are located in the east, they have as high a transportation cost to land that product as we do or even higher. So the fact of matter is, if the European Commission goes forward with some sort of duties, what they're basically telling us the French farmers, you have to subsidize the high cost eastern European producers. And if you're sitting in Belgium that's probably not a terribly attractive message to be sending out to the French farmers, particularly given the yellow vest situation and so forth. So we'll see how it develops, but, Bert, you want to talk about plans that we've made to deal with the situation if it goes that way, if the farmers are subsidizing high-cost producers?

Yeah, either way, regarding your question on trade flows, we're constantly looking at our options and optionality to the system, whether that be moving to this market or that market. We're ambivalent to where the tons go. We like to move them to the highest netback. But, that being said, we've constantly review -- we brought on 1.8 million tons of capacity in '16 and '17 of UAN and we've had additional capacity growth because the Port Neal plant, urea plant is running so far above capacity. We have extra liquor, and we're making extra UAN up there also. So when you look at the buckets that are available to us, it's the production mix that we choose to work with each -- we can move really on a ship, so let's say, each day of the week and probably right now, we're running a little higher urea mix because that is more attractive. We're looking at extra terminalling opportunities in the United States around the Coast and we're working with our domestic customers for additional tonnage to remain in this market. And then you've heard us talk about the development of South America, Argentina, Brazil, Chile, Colombia and Mexico. All of those markets have grown substantially in the last five years, and we're at the forefront of that effort for very attractive margins. So we look at -- at least CF's UAN book. We think we'll be able to continue the same level or above that we're participating in the market today and see good opportunities going forward.

Hi, good morning, guys. The last few months, you saw a lot of volatility around Indian tenders which -- urea tenders, which you don't participate in, but maybe from your perspective, you can comment on what kind of volatility in the market this created among market participants in terms of different trade flows going on between China and India and China and Iran, but also there's a lot of discussion and maybe some of the bid volume into the tenders were double counts in different ways. So maybe talk about how the different play on the Indian tender has affected your market that you participate in? Thanks.

Yeah. When you look at the Indian tenders, they do, depending on the size and the timing, can have a big impact. They are the only country in the world that purchases this volume, this amount of tons, 6 -- let's say 5.5 million to 7 million tons, depending on the year, and in the past that came principally from Iran and China. As we've talked about over the last couple of years, these trade flows are changing, and we see a decreasing amount of tonnage coming out of China over the next couple of years, and that has happened. And then with the sanction on Iran, that has been difficult, if not impossible to participate in the recent Iranian tenders. So the tonnage has moved to the Middle East, principally supplied out of Qatar, Saudi Arabia and some of those countries as well as Nigeria and some Northern Africa. And so I think as traders and producers have participated -- some producers are going direct and some traders, you're right, some people took some shorts and then covered later. And so that does have a disrupting impact on the overall market when you get in and buy 1 million-plus tons in a week and then that ships over a 6 to 8 week period. So we look at that for us and how we manage our position and how we manage what we expect to come into North America. And I think for us it's a good outcome that Indian buyers are buying and the Middle Eastern producers are shipping. It's like a $7 freight to go to India, rather than spending $20 to $30 to come to North America. But this goes back to my earlier comment that this is just how economics works. Lower-cost providers are providing into a market that's attractive for them and so trade flows will continue to evolve. We have some spot tonnage that comes into this market as well as Brazil, and when that is too much that overwhelms the market. That's what happened in Brazil and that's what happened to us in the last couple of months. We think that will moderate and we'll see a positive market going forward.

Thanks. Just a quick follow-up on the pipeline issue. With cold weather affecting the barge season, there's already talk of high barge demand through second quarter. Is that going to drive your freight costs higher?

For CF, we've contracted our barge logistics and as well as we have our own railcars for 5,000 and we have our own trucking group just managing -- increasing amount of our truck logistics. You're correct. I think with the cold weather, the ice and ice block (ph) will be a little bit later, but the volume of water is probably going to be going down the rivers will make barge traffic going up slow. So the impact of the Magellan for us is ammonia and we do barge ammonia from Verdigris as well as Donaldsonville and we are already putting that -- or we believe will have (ph) into motion and I think we'll be fine. But I do think that barge freight probably will go up and we can see with other competitors and customers are doing locking up low points like out of St. Louis into the upper Midwest or securing barge logistics for some of these spot (ph) vessels that are coming in for its inability to get that. That's why I think we'll be impacted, by these vessels that are coming without barge service connected to the sale might suffer an inability to get service for a short period of time.

Anthony Will -- President and Chief Executive Officer

The other thing I would add, Mark, to what Bert just said is, generally speaking, much of the tightness in the barge market is focused around dry product, and we have -- we own our own ammonia tows and have long-term leases on the other ones. So we've got pretty ready access to the vessels and have tower (ph) on long-term lease as well. And because of the basis differential favorability in Oklahoma, we can actually move Verdigris ammonia down into Norland's for about the same price or even some days cheaper than what we can produce it in Donaldsonville and because Donaldsonville is already on the Nustar, what we tend to do when we do an ammonia export is a lot of times end up making that the Verdigris tons that go out. So the -- on the glass half full side of the equation, high barge costs and freight costs in general just increase the in-market premium that we get and so given the in-market and network and capacity that we have that's actually a really good thing for us as opposed to a bad thing. High oil, high freight costs, high scarcity of vessel and other options all play to our advantage instead of become a detriment to us.

Operator

Thank you. And our next question comes from Steve Byrne with Bank of America. Please proceed.

Steve Byrne -- Bank of America -- Analyst

Yes, pardon me, what would you say contributed to your UAN net realized price in the quarter that seems more, more below our spot expectations for the quarter? It was -- any particular key end markets you were selling into that weighed on that or maybe it was forward sales. And then in terms of your outlook for UAN, with respect to pricing that has been a little bit weak here in the last two months, what gives you the conviction that the channel is not already full? Your outlook for more corn and the fall application season was light that seems very supportive, but how do you know that channel is not already full or your competitors have been already sold forward?

Anthony Will -- President and Chief Executive Officer

Steve, let me answer the first piece of that and then I'll turn it over to Bert to handle the forward look. So I'm going to take you back to our November transcript. I'm not sure how much clearer we could have been about saying, look, our forward order book, we like the price when we took it we didn't see the huge run-up coming in the fall and expect most of the fourth quarter to contain a heavy dose of fill from the summer. So I understand that a lot of people sort of have a quote unquote miss out there on UAN price, but it's not clear to me what we could have done differently to have provided visibility into what people should have been expecting. And my only sense is, and I say this with the utmost respect for your work, like you've got to listen to what we say instead of what the publications are posting for spot price because we gave you at the script for what was going to happen in terms of the fourth quarter results. But that said, I'll turn it over to Bert and let him talk about our view into the first half of '19.

Yes, so looking at it, I don't believe it's the channel's fault. We've spent considerable time over the last several years identifying tanks and size of tanks and the ability of the distribution system to absorb the tonnage that is produced and imported. Today the UAN market is we believe for North America will be above 14 million tons and I think demand for specifically UAN will be robust given that the fall ammonia season was so light. And when you look at the fall ammonia season comparisons, 2018 was a very poor year comparable to 2016, the difference being that in 2016 we didn't get a lot in Canada and the Northern tier but did in the Southern tier. It was the opposite this time and we did get a lot of movement in product supply to Canada and the Northern tier and did not in the Southern tier which is a bigger consumption area. That means that -- the kind of the industry talk is about 40% went down, so 60% did not and that could be conservatively 700,000 to 1 million tons of ammonia. It will be impossible for that to all go out as ammonia. It will have to go to upgrade a product. And so we believe our customers are preparing for that and realizing that they need to get those logistics in place, those logistics can reserve and that is with us and others. And so competitors may have sold forward, that's fine. The market in terms of being weak on an end base is actually very strong. With urea trading where it is at NOLA, at the current UAN price, it's trading above its historic premium and we think positioned very well and we're probably, I'd say four to six weeks away from spring starting and that just plays right into our strengths with our storage network, end market production and we think that UAN pricing will fare fairly well in Q1 and Q2.

Yes, sir. A question on your thoughts on the moderation of Asian and EU energy prices on the global cost curve. Normally in your presentation you've got a cost curve and what the implications are for what you think US pricing would be. For example in Q3, you're implying that the then cost curve would give you a $260 to $310 NOLA urea price range in 2019 you went through some of the -- your cost advantages over TTF and anthracite. So can you update us on where we are now compared to what you were talking about in the third quarter given the lower energy prices? Thanks.

Dennis Kelleher -- Senior Vice President and Chief Financial Officer

Yes, Don, this is Dennis. When we talked last time we've been, as you said, the range was, as you laid it out, a little bit above $300. What we're seeing today is that basically the floor that we talked about because where the shelf sits is roughly the same sort of that, say, $260, but the ceiling has come down to say sort of $285, $290 to account for what's happened to oil prices and the related effects that they've had on gas prices. So we still face a pretty steep cost curve, even with what's happened to energy prices. And if you look at those two numbers that I just gave you, you can see way up the left-hand side of the cost curve that there is still as Tony and Bert have been discussing, a tremendous margin opportunity still left in the business. And we'll have to see what happens to oil prices. What we see now is that OPEC compliance has been reasonably good. OPEC plus and prices have come up all right, I think at $65 Brent today, I'm not sure exactly what the forward curve is going out. But it looks like it's perking up just a little bit.

Anthony Will -- President and Chief Executive Officer

And I would just add, Don, on that one. You're absolutely right. When we published that curve, I think Brent was at $70, mid-70s and now it's low-60s. The one thing that's moderated against that a little bit is internal to China, not what they're importing, but internal China, at least according to Wood Mac, their coal prices have remained relatively flat if not increased a little bit. And so as Dennis said you may have a couple of those bars on what was otherwise a fairly flat shelf that have changed positions a little bit here or there. But -- and you got compression in terms of the width of that high to low, but it's not like the low end of that has collapsed by any stretch of the imagination. The other thing that we're pretty excited about honestly is after we published the curve in October, you got into November and December and US gas price had spiked for quite a while. It looked like the forward into the first quarter was up with a fore (ph) handle on much of that and when you look today, it's come down dramatically. We're in the mid-2s now. And so there's -- I think it goes to what we spoke about earlier in terms of the supply response in the US and just how much capacity there is to move gas around here. And if anything, our cost structure is favorable to when we produce this chart back in October and we'll have to see what happens to the rest of the year. But we're very pleased to be largely open gas right now and -- because I think there is some upside for us out there.

Dennis Kelleher -- Senior Vice President and Chief Financial Officer

Yeah. Don, here I think I would point out because it's always important I think to remind people who look at the cost curves, what they are facing, what they are -- a good indication, so what average prices would be for sort of the year if the energy prices that we lay out in the detail were prevalent. And it really is a price floor, not a price ceiling, and so you can get into periods during the year and you can get into years in which demand is a lot stronger than immediate supply and you can get prices on average that rise above the cost curve as we have seen in prior years. And one thing that I think that makes us confident in this respect is as you look forward, going from '19 through '21, ' 22 the rate of growth in capacity is outstripped by the rate of growth in demand, and so the supply/demand balance is moving in the right direction for us.

Yes, good morning. Two questions off the impact of the four application fall season in North America. First is, with -- if we get the big expected spring like you think, does that change the mix of nitrogen products between urea, UAN and ammonia? Or will the mix be normal? And then two, what does that do to your inventories, both dollar amount that you carried through the year and then how much kind of product do you have pre-placed to meet a big demand season?

So impact for fall, you cannot as you enter fall, we plan for a normal season and we've got decades of -- shows what normal is, and some of that's pre-sold and some of that is sold spot. As we roll through the fall, it was evident early -- like, I'm talking about by the 10th of November, we would not have a fall ammonia season. And so we quickly pivot in and redirect the tons to different markets and position the plants differently. Our intention is always to be able to run our plants full and to then prepare for the spring and position those products for demand starting kind of now in the Texas and Oklahoma market and as the market moves north those markets come into play. So first spring, we are planning for a big spring. With 93 million acres, we're constructively positive looking assets in the corn sector, one because of the low stocks to use ratio on corn, we believe that the $4 position today of corn has some upside. Beans probably have downsized with the carryout. Almost 100% increase in the carryout on soybean, so it will be difficult to store and to move and especially if we don't get some resolution to the Chinese limitation on imports there, plus you're going into the Brazilian shipping season now. So we are planning on a lower level of soybean exports in the 24 million ton type range going forward, and that I think puts pressure on soybean. So the attractiveness of corn, I think can go to 95 million acres and then moving this additional demand from the fall to the spring will make it difficult to get all those tons out on a timely basis. The ammonia season moves in a period of days and weeks and that's where I mentioned earlier truck and other logistics become paramount. And so I do believe the mix is going to change. Let's say, as I said earlier, 700,000 to 1 million tons of ammonia to not go down in the fall, if you bucket that three different positions just dividing it by a third, 300,000 tons of ammonia will move to the spring. We're ready for that. And then you have to multiply it by the n factor because UAN is 32%, urea is 46% and ammonia is 82%, you're going to see a substantial amount of urea and UAN being needed in the upper Midwest. And inventory-wise, we plan to go in full and prepared and then the challenge will be resupply. So we're having our railcars position to move those tons as well as our barging assets and we're up to the challenge.

Thanks very much. In your fourth quarter results, can you talk about how much volume was limited by the short season and how much of it was limited by your own turnaround? And can you also say something about the level of imports of nitrogen fertilizer you expect into the United States in the first half of 2019?

Anthony Will -- President and Chief Executive Officer

Jeff, let me handle kind of the first piece of that or at least a piece of the first piece of that, and I'll throw it over to Bert.

Jeffrey Zekauskas -- JPMorgan -- Analyst

Sure.

Anthony Will -- President and Chief Executive Officer

The turnaround activity level is high for us really. Had we had extra ammonia in the fourth quarter, it would have either had to go out as exports, which the ammonia exports are -- are fine. They make some money but they're certainly not as valuable as the in-market ag sales are. And so the volume shortfall on ammonia was really a seasonal issue as opposed to a turnaround issue. And we had pretty good movement of the upgraded products, and at the end of the day that was a couple of hundred thousand tons we're talking about. So it's relatively small number in the context of 19.5 million tons. But I would largely point that to the volume of ag ammonia that didn't go out versus what a normal season is as opposed to anything else. And then Bert, I'll let you kind of comment on the rest.

So looking at the imports where we are to-date, I would say we're ahead, expecting a 4 million tons to 4.1 million tons of urea and 1 -- probably needed 1.5 million tons of UAN, and we're currently trending toward above that level. That's why I think you're seeing the weakness in NOLA. And you have to remember, New Orleans is one of the few markets in the world that has liquidity at all times. In Brazil, you have to bring that vessel in and nominate it to have it sold. You don't have to do that in NOLA. In India, you work off tenders. And so we've seen some traders -- this is what has happened over the years. These traders bring product in, market gets lower and they take or somebody taking these losses, and we believe that this declined over time as we've gone from 8 million tons then for us to 4 million tons. But it takes time for people to learn lessons I think. And so we expect that imports coming in the Q2 will be probably lower just because of total demand in position and we think the market will balance that way.

Jeffrey Zekauskas -- JPMorgan -- Analyst

Bert, why don't you just comment a little bit on -- so you do have this extra imports kind of slopping around in NOLA but the end market premium, what's happened to that given the constraints on being able to actually move that product out of the region?

Yeah, I think a direct reflection of the importance of logistics, contracts positioning and timing is where we are on both the end market premium for urea and UAN and ammonia for that matter. Ammonia is trading below $300 in Tampa and at $500 in the end market terminals. Urea is trading at $240 in NOLA and trading at $290 to $300 in the interior. UAN is trading at $185, $190 in NOLA; trading at say $210 to $240 in the interior, depending on the production location. So you're exactly right. This is something we've talked about and we plan on continuing because there is a value to being able to pick up and not have such a substantial position, taking a vessel of 30,000 tons at prices several million dollars where you take it by the truckloads, and I think that's called just appropriate position risk for our customers, and we want to provide that opportunity for them.

So with the lower fall application that goes into spring, farmers can decide to apply a little bit of ammonia, but maybe more likely, urea and UAN. And how do you think that will play out in terms of volumes of each because your margins are different on each product. So how do you maximize your profit while helping your growers? And related to that, just quickly, how much urea did you export during the off-season here and what was the netback on the exports? Thank you.

Okay. So looking at that question, and we don't sell directly to farmers. We work with our retail and channel partners to do the optimal decision making for the farmer. And that is directly connected to the four R's, supplying the right product, at the right rate, at the right place, at the right time. And so we make these products and we can move our products to different places, whether that be export, domestic, up the river, on the rail, with the trucks, through a pipeline, with the idea of having or the ideal of having that product in place for our customers to pull. And so when you're looking though -- at our corn farmer, who is planting for a yield and the trend yield this year is 176 bushels an acre. If you're in the I (ph) states, Iowa, Illinois, Indiana, and probably Nebraska, so the irrigation areas, your target is probably 220 to 280 bushels an acre. And that's what was pulled off last year. So you're -- as you are planting, you're pulling nutrients off the soil and those nutrients will be needed and especially to foresee optimal feed growth. What we're seeing is a combination of applications but ammonia plays the pivotal role in the initial growth stage of the corn crop and then either urea or UAN or a combination thereof with applications. And so, yes, margins are different for upgraded products as we go. But we're driven -- I think to serve the needs of the farm center and retail center and that's what we'll continue to do. On the urea exports, what -- we kind of -- we're ambivalent to where our products go, and it's netback driven for that market also. So when there is an attractive opportunity, we will export and we did that last week. We took a vessel to Chile or we're going to be loading in next week, and that was a positive netback compared to what the domestic market was giving us. Last year, we exported a little over 400,000 tons of urea -- about 450,000 tons and UAN close to 1.5 million tons, focused on Europe and South America, but we shipped to Australia and Ukraine also. And so those are great opportunities for us. We're happy to build our customer base as a global participant in this market. And as those opportunities come to us, we will execute against them.

Anthony Will -- President and Chief Executive Officer

And in particular, on urea, I would say much of the year -- last year, the US was a little bit of the port of last resort for a number of international producers. And so what you saw was NOLA trading at a bit of a discount to international parity and so on virtually every one of those exports that we conducted last year, the netback was substantially above what NOLA was offering. And so I think from the standpoint of urea in particular export is a great option for us.

Operator

Thank you. And our next question comes from John Roberts with UBS. Please proceed.

John Roberts -- UBS -- Analyst

Thank you. Was the buyback activity in the fourth quarter about the max rate that you could do in an open market program or could you buy back a lot more stock? And just want to -- I think about the pace of buyback that we might expect?

Anthony Will -- President and Chief Executive Officer

So, John, we had an authorization that was capped at $500 million. And in mid-October, we were -- the share price was trading in the mid-50s, and then as you wound toward the end of the year, we had dropped to the low 40s. So I think what you saw was a -- an increased activity that was reflective of where the share price was and the fact that taking shares out in the low 40s is also providing about a 3% after-tax yield for us given the dividend on -- on the shares. So we think that's a great opportunity to take that down, and going forward, I think what you'll see is a pace that is going to be reflective of market conditions and cash generation as well as where the share price is. And with lower share price, expect us to buy more in. So that's kind of the -- how we think about the world.

John Roberts -- UBS -- Analyst

And then on slide 16, in the back on the expected closures in China. About half of the expected closures are assumed rather than actually announced. Could you talk a little bit about the assumptions behind that estimate?

Anthony Will -- President and Chief Executive Officer

Yeah. The assumptions that weigh into that is, looking at where the coal prices are as well as electricity price and the internal pricing versus being able to get kind of import parity, what are the number of plants that are below breakeven from the standpoint of cash flow perspective. And -- so we have a sense of the aggregate loss from a cash perspective on a number of those plants, and that's what goes into that assessment. We can't tell you which are the ones that are going to turn off the lights first, but we see that as likely coming, and we think there's going to be about (ph) 5 million tons of closures as we make our way through this year. And a lot of those plants may not be producing today. They could be on curtailment or shut down, but because they haven't been announced as closures, they haven't yet -- in the list yet, but it certainly wouldn't surprise me if it doesn't change the net balance from a Chinese production demand standpoint. It's just they're going to be moved into the permanent closure as supposed to temporarily curtailed.

Hi, this is Jeremy Rosenberg on for Vincent. Thanks for taking my question. Just had a question on -- just from a modeling perspective for 2019, any puts and takes to think about whether it be the tax rate or really just anything to flag from modeling perspective would be helpful. Thank you.

Dennis Kelleher -- Senior Vice President and Chief Financial Officer

Yeah, I mean, from a tax perspective, what we're looking at is probably a federal tax rate of around 25%. We sort of said mid-20s. So there is a 21% statutory rate plus some state and foreign taxes. Remember that our largest foreign jurisdiction, Canada, has a higher tax rate than we have here today. That, however, is for provision purposes. From a cash perspective, you'll see in the 10-K, we have a substantial amount of net operating loss carried forwards, which are laid out there. But in addition to that, we have the ability to take bonus depreciation as to deduct 60% of the cost of capital in-year and we've got a capital budget next year for $400 million to $450 million. So I'm not sure how good the -- our earnings and so from a tax perspective, it will turn out you all have different perspectives. But we've got ways to shelter those. I wouldn't expect that in 2019 we'd be paying a significant amount of federal cash taxes despite that what we have in the provision.

Sorry. You mentioned in your press release you've been monitoring the Iranian sanction and the Chinese reexporting. I was wondering is there a role for you to take a more active stance than just monitoring. You do have pretty active market intelligence as far as I know. How do you see this playing out? Can the Chinese traders keep the exporting with no interfering from the US government?

Anthony Will -- President and Chief Executive Officer

Well, I think there certainly is the option for some of that to continue and then more recently, there has been, I think some discussions about doing direct business with India and trying to do some currency payments and movements that don't touch the international wire system. So that would allow some of that activity to happen. Our view all along has been that the gas is virtually free, the plants are built, they're going to run those plants, and those tons are going to find a way into the international market through some vehicle and it does create a bit of an overhang and some disruption. But our view is that that was just part of the global supply picture and we weren't counting on them not happening. I would say that the US government is well aware that those tons are coming out and -- some of the stuff is just outside the areas that we can provide or the government can provide appropriate pressure against. But I do think longer-term, the -- as long as the sanctions stay in place, whether it's access to technical expertise, access to new parts, particularly some of the more exotic materials that need to be fab-ed in Europe or other places that are more directly affected, you may see either a reduction in operating rate or slowness for like the Lordegan plant coming up kind of thing. So I think what's running is going to continue to run, but depending upon how long this goes on, that could drop off a little bit.

Hi, good morning. So just regarding the $500 million of -- $500 million of debt that's due next year. Do you plan to repay that or do you plan to roll it over? And maybe just more of a general question on capital allocation. Aside from debt repayments and share repurchases, is there anything else that you look at investing into, maybe expansions or M&A? Thanks.

Dennis Kelleher -- Senior Vice President and Chief Financial Officer

Well, I mean, if you go back to our capital allocation philosophy, we would like to invest in growth for our business, where we can do that and have it be accretive on a cash flow per share basis and above our cost of capital. There are, however, not a million of those things for us to do and we're pretty picky about the projects in the M&A prospects that we look at. So absent anything of significance in that area, we want to return the cash to shareholders. But we want to do that within a frame -- in a framework that reflects our commitment to long-term investment grade metrics. And so what we've committed to the market is we are going to repay on or before its maturity date, which is in May of 2020 the last of the $500 million of the 2010 or -- I think it's 2010 bond. Those are big carrier coupon rate of about 7.125%. So when we finally get that done, we'll be sitting at an interest cost per year -- cash interest cost of below $200 million per year. This is a significant reduction in fixed charges. I think it's also important, as Tony pointed out, that we also do share repurchases as a means of returning cash to shareholders. And it has like a 3%-ish after-tax yield on that and it does eliminate a lot of fixed charges as well. So we believe that both taking the debt out and also reducing the fixed charge associated with dividends are credit positive.

Operator

Thank you. Ladies and gentlemen, that is all the time we have for questions for today. I'd like to turn the call back to Martin Jarosick for closing remarks.

Martin Jarosick -- Vice President-Investor Relations

Thanks, everyone, for joining us and we look forward to following this conversion at the various conferences we'll be at over the next few months.

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